2021 (8) TMI 567 - HC - Income Tax

Deduction u/s 10A - exclusion of establishment and maintenance expenses pertaining to foreign branch from export turnover - Whether Tribunal was right in holding that 50% of the telecommunication expense both from the export turnover and total turnover is to be made while computing deduction u/s 10A? - Tribunal was right in granting deduction u/s 10A without setting of brought forward losses especially when Section 2(45) clearly defines the total income as an amount referred to in Section 5 computed in the manner laid down under the Income Tax Act and therefore the total income to be worked out after giving effect to provisions of Sections 71 and 72 contained in Chapter VI of the Income Tax Act - HELD THAT - It is not disputed before us that all the substantial questions of law, which have been framed for consideration in these appeals, have been considered by the Division Bench of this Court in the case of CIT vs. SRA Systems Ltd 2019 (2) TMI 57 - MADRAS HIGH COURT - Decided against revenue.

Summary

Issues:
1. Interpretation of exclusion of establishment and maintenance expenses from export turnover for claiming relief under Section 10 for assessment years 2004-05 and 2005-06.
2. Determination of the percentage of telecommunication expense to be excluded from export turnover and total turnover while computing deduction under Section 10A for assessment years 2004-05 and 2005-06.
3. Granting deduction under Section 10A without setting off brought forward losses when Section 2(45) defines total income and the impact of Sections 71 and 72 contained in Chapter VI of the Income Tax Act.

Analysis:
The appeals filed by the Revenue under Section 260A of the Income Tax Act, 1961 challenged an order related to assessment years 2004-05 and 2005-06. The substantial questions of law included the exclusion of establishment and maintenance expenses from export turnover, the determination of telecommunication expense percentage for deduction under Section 10A, and granting deduction under Section 10A without setting off brought forward losses. The Division Bench had previously considered similar questions in other cases, establishing precedents. The judgments referenced by the parties highlighted the importance of interpreting the law to avoid illogical results and ensure fair treatment. The judgments emphasized that deductions under Section 10A or 10B should be made while computing the gross total income of the eligible undertaking under Chapter IV of the Act, not at the stage of computing total income under Chapter VI. The decisions of the Hon'ble Supreme Court and the High Court were relied upon to resolve the issues against the Revenue and in favor of the assessee. The appeals were dismissed based on the established legal principles and precedents, with no costs awarded.

This detailed analysis of the judgment provides insights into the interpretation of the Income Tax Act, specifically regarding deductions and exclusions related to export turnover, telecommunication expenses, and the treatment of brought forward losses. The legal reasoning and precedents cited in the judgment offer a comprehensive understanding of the issues involved and the application of relevant legal principles to resolve the matter.